The trade relationship between the US and China is like a complicated friendship that affects not just them but the whole world. Imagine two kids in a sandbox, both wanting to build the biggest sandcastle. They need to share the toys (resources) to build their castles (economies), but they also want to be the ones with the tallest castles at the end of the day (global dominance). The US and China are two of the biggest players in the world’s economic playground. They trade a lot with each other, but it’s not always friendly. The US says China doesn’t play fair, accusing it of stealing ideas (intellectual property) and not being honest about the value of its money. China, on the other hand, thinks the United States (US/U.S.) is trying to stop it from becoming more powerful and influential.
This back-and-forth has created a kind of trade tug-of-war, where they impose tariffs, which are like special taxes on each other’s goods. This disagreement isn’t just their problem. It affects global trade, businesses, and even our wallets because when countries don’t get along trade-wise, it can make things more expensive and hurt economies worldwide. So, this US-China trade relationship is a big deal, shaping how countries interact, businesses operate, and even how much we pay for things. Let’s explore more about this and see how this giant economic tussle might shape our future.
US-China Trade: Introduction
Trade between the U.S. and China has skyrocketed over the past few decades, becoming vital for both nations. Nowadays, China stands as one of the biggest buyers of U.S. products and services, while the U.S. is a top buyer of Chinese exports. This trading relationship has offered perks like lower prices for U.S. shoppers and increased profits for businesses, but it’s not without its downsides.
Although U.S. shoppers have enjoyed access to a variety of affordable items from China, this influx has cost numerous Americans their jobs due to the stiff competition from imported goods. The U.S. has consistently claimed that China forces American businesses to give up their technological secrets or even steal them. The hopeful spirit that marked China’s entrance into the World Trade Organization (WTO) two decades ago has faded as Beijing has opted for a development model led by the government, funneling financial aid into chosen industries and negatively impacting U.S. and other foreign firms. Additionally, investments by Chinese businesses have sparked worries about national security. With U.S. President Joe Biden adopting a progressively bold stance, the path forward for this economic partnership remains unclear.
History Of US-China Trade Relationship
The relationship between the United States and China is one of the most crucial and complicated partnerships globally. Since 1949, the two countries have navigated through times of stress and collaboration, dealing with various issues like trade, climate change, and matters related to Taiwan.
For three decades after the People’s Republic of China was established in 1949, trade between it and the United States was practically non-existent, as Washington cut off ties with Beijing’s communist government. However, in 1979, the U.S. and China smoothed over their relations, triggering a trade boom over the next 40 years, escalating from a modest few billion dollars to an impressive hundreds of billions annually. China also embarked on a lengthy economic reform journey starting in the late 1970s, led by Deng Xiaoping. His administration eased the government’s grip on the economy and permitted the growth of private sectors. Aiming to enhance trade and investment, Chinese leaders sought to re-enter the General Agreement on Tariffs and Trade, the precursor to the WTO, in 1986. After extended talks with the U.S. and other WTO members, China became a WTO member in December 2001, agreeing to a broad array of economic reforms, including significant tariff reductions, intellectual property safeguards, and transparency in its legal and regulatory frameworks.
U.S. President Bill Clinton and his team argued that integrating China into the global trade system would benefit the U.S. and potentially drive economic and democratic reforms in China. However, U.S. labor unions and numerous congressional Democrats resisted, asserting that China’s lax worker and environmental safeguards would encourage similar practices globally, initiating a “race to the bottom.”
Even before its WTO membership, U.S.-China trade was on the rise. But being in the WTO ensured “permanent normal trade relations,” offering U.S. and international businesses added assurance for producing in China and exporting to the U.S. Trade soared: U.S. goods imports from China jumped from roughly $100 billion in 2001 to over $500 billion in 2022, partially attributed to China’s pivotal role in global supply chains, assembling exports to the U.S. with components sourced worldwide.
Relations Between China and the U.S.
Chinese Investment in the U.S.: A rural Michigan township has become the newest arena in the U.S.-China economic rivalry, thanks to a plan by a Chinese company’s subsidiary to establish a factory for electric vehicle batteries.
Untapped Potential: China’s most brilliant minds, including tech experts, are choosing to emigrate, but many are bypassing America.
Espionage Shadow War: The U.S. and China are daringly attempting to collect intelligence on each other, elevating global espionage activities to unprecedented heights.
Corporate America: For American companies, conducting business in China, once perceived as a surefire opportunity, now presents a perplexing dilemma: The arguments for remaining are just as persuasive as those for withdrawing.
Economic and Military Power
In 2022, the U.S. economy, valued at $25.5 trillion, still surpassed China’s $18 trillion GDP in terms of dollar value. However, considering China’s population is over four times that of the U.S., the economic scenario alters when adjusted for local prices: China’s share of global GDP is 18.9%, outdoing the U.S. at 15.4%, as per the International Monetary Fund.
China has invested over a trillion dollars globally through its Belt and Road Initiative, perceived by analysts as a strategy to extend its influence worldwide. The swift expansion and modernization of China’s military have raised eyebrows in the U.S., especially given China’s superior naval fleet and larger military personnel, standing at 2.5 million in 2019. Nonetheless, the U.S., spending $877 billion on defense in 2022, surpasses China’s reported $292 billion, boasting better-equipped forces.
Trade Relations
Despite escalating tensions, trade thrives between the nations, with China being America’s third-largest trading partner. U.S. imports from China peaked at $563.6 billion last year, though the share of imports from China has seen a decline, indicating some businesses are severing ties.
China is also a vital export market for the U.S., absorbing half of all U.S. soybean exports. In 2021, U.S. exports to China supported approximately 1.1 million U.S. jobs, according to the U.S.-China Business Council.
China, dominating supply chains for various goods and being the world’s largest producer of numerous items, has quadrupled its car exports in two years, emerging as the world’s largest auto exporter, particularly in electric vehicles.
The U.S. has increasingly sanctioned Chinese entities due to national security and human rights issues, placing 721 Chinese entities on a restricted “entity list.”
Financial and Corporate Ties
China, holding nearly $1 trillion of U.S. debt, is one of America’s largest creditors. Members of the S&P 500 index generate 7.6% of their revenue in mainland China, the largest source of international sales. However, the business outlook for American companies in China has dimmed, with 56% reporting unprofitability in 2022 in a survey by the American Chamber of Commerce in China.
Personal and Cultural Connections
The U.S. hosts nearly 2.4 million Chinese immigrants and remains a top educational destination for Chinese students. However, racial discrimination against Chinese Americans is prevalent, with roughly three in four experiencing it in the past year, according to a survey.
China, once seen as a low-end manufacturer, has evolved into a hub for innovation and cultural production. TikTok, a popular social media app from China’s ByteDance, claims over 150 million users in the U.S.
In 2021, 20 American movies were released in China, grossing around $673 million. China had over 80,000 movie screens by late 2021, compared to about 39,000 in the U.S.
Travel between the two countries has been significantly impacted by pandemic restrictions, with only 24 flights per week between the U.S. and China, down from about 350 pre-pandemics.
Benefits Of US-China Trade
U.S. consumers and companies have reaped significant benefits from economical prices and lucrative access to China’s market, respectively. A study conducted in 2019 by economists Xavier Jaravel and Erick Sager revealed that from 2000 to 2007, enhanced trade relations with China elevated the annual purchasing power of an average U.S. household by $1,500. Presently, China ranks as the third-largest export market for the U.S., trailing behind Canada and Mexico. According to a 2022 report from the U.S.-China Business Council, a trade industry group, over a million U.S. jobs are sustained by exports to China.
Annually, American firms accumulate hundreds of billions of dollars through sales in China, providing capital that can be reinvested into their operations within the U.S. Conversely, Chinese firms have poured tens of billions of dollars into the U.S., although such investments have seen a decline in recent years due to increased scrutiny by the U.S. government.
China has witnessed remarkable economic gains from trading with the U.S. and other global partners. Since its 2001 economic expansion, China’s economy, when adjusted for inflation, has amplified over five times, positioning it as the world’s second-largest economy, just behind the U.S. This growth has facilitated the elevation of hundreds of millions of individuals out of extreme poverty.
Issues
While the trade relationship has yielded benefits, it has also introduced numerous challenges for the United States and other nations.
- Manufacturing Job Losses: The “China Shock,” a term derived from research by economists David Autor, David Dorn, and Gordon Hanson, refers to the significant impact on the U.S. economy due to rapid import increases, China’s large low-wage workforce and the breadth of impacted industries. This phenomenon also correlated with political polarization in regions most adversely affected by competition with China.
- National Security Concerns: U.S. officials express apprehension over China’s attempts to acquire sensitive U.S. technology to advance its industrial and military objectives. Allegations of intellectual property theft and forced technology transfers from American companies operating in China have also been prevalent.
- Subsidization and State-Owned Enterprises: China’s government has invested heavily in various industries to cultivate “national champion” companies. The U.S. contends that Chinese state-owned enterprises, backed by substantial state support, disrupt global competition and do not operate based on market forces.
- Currency Manipulation: Economists have argued that China intentionally devalued its currency, the renminbi, by amassing U.S. dollar reserves, affecting trade balances by making Chinese imports more affordable and U.S. exports pricier.
- Labour and Human Rights Violations: Persistent critiques from the U.S. regarding human rights and labor conditions in China have been amplified by reports of forced labor in Xinjiang amidst the repression of Uyghur populations.
China has adeptly acquired Western technology, bolstering domestic companies to become global competitors, as highlighted by CFR’s Jennifer Hillman using the 5G network industry as an example. The U.S., along with other countries like EU members and Japan, has been vocal in criticizing Chinese trade practices, reflecting widespread international concern.
Response Of United States
The U.S. has employed various strategies to manage trade concerns with China, including negotiations, WTO disputes, and tariffs, with the relationship becoming increasingly confrontational over the past decade. U.S. negotiators initially secured a temporary safeguard during China’s WTO accession, but it was scarcely utilized. Subsequent administrations, from Bush and Obama to Trump and Biden, have each escalated measures to address trade imbalances, intellectual property concerns, and national security implications related to trade with China.
Strategies have included imposing tariffs, scrutinizing investments, engaging in high-level dialogues, and negotiating trade agreements or phases, each with varying degrees of assertiveness and success. Under Biden, the U.S. has sustained substantial tariffs and sanctions, introduced strict export controls, and restricted some U.S. investments in sensitive technologies amidst ongoing trade tensions with China.
Conclusion
Biden’s continuation of economic pressures against China, including maintaining tariffs and export controls, has prompted queries about the future trade relationship between the two nations. Various legislative proposals aim to expand investment restrictions and divest from Chinese companies, while some lawmakers advocate for banning TikTok. The COVID-19 pandemic and China’s rise have revived U.S. industrial policy, with acts passed to fund scientific research and domestic high-tech goods production, potentially impacting China’s semiconductor industry.
While the Biden administration asserts that restrictions aim to safeguard national security, debates persist regarding the efficacy of the WTO system in addressing U.S.-China trade issues. Some experts and politicians suggest alternative approaches, ranging from forming a compact among allied nations to abolishing the WTO, while others advocate for patience and working within existing frameworks, cautioning against adopting a similar economic model to China.
